Is Insurance Higher on a Leased Car?

So you’ve decided to lease a new car rather than buy it outright. While there’s heated debate about which option is more cost effective in the long run, the insurance side of the decision is really a non-issue.

Assuming all things equal…other than the financing (lease vs. buy)…there isn’t any difference in the cost to insure the vehicle. The real key here is whether or not all things can be equal, which may not be possible if you opt for the lease.

This requirement will result in a higher premium ONLY if you planned on purchasing lower liability limits, which really isn’t recommended.

Full Coverage (Physical Damage) – Pay close attention here. You will only be able to skirt full coverage, which includes physical damage coverage, if you pay cash for your new car. If you “buy” the car with a loan, you will not be able to opt out of this coverage. Your lender, known as a loss payee, will also require collision and comprehensive coverage.

They rightfully assume a higher deductible may cause too much financial trouble for you and cause moral hazards when it comes to reporting and repairing damage.

Don’t Forget the Gap Coverage

Most lease agreements include GAP coverage to protect their financial interest in your car. Gap coverage is basically an insurance-esque coverage you purchase and pay for to protect their money.

It may not sound fair put that way, but if you owe more than the car is worth (which is common for new vehicles) you’ll be happy if your car is totaled and you don’t have to pay the difference between what you owe and the vehicle’s actual cash value.